Ambuja Cements Ltd. share price target

Keeping up with its commitment (given during FY23 earning call) of placing equipment orders for capacity expansion soon, Ambuja Cement (ACEM) on May 12, ‘23 formally announced the placing of orders for 8mtpa clinker expansion.

Q4 revenue growth muted at 8% YoY on tepid realisations and limited volumes owing to a labour strike

We maintain our BUY rating on the stock

Despite concerns around the parent Adani group finances (for the past few months), Ambuja Cement (ACEM) has not only reiterated its plan to double capacity to 140mtpa by FY28, but also assured investors of: a) placing equipment orders soon, and b) spending a huge Rs72bn towards capex in FY24.

Pricing power is crucial in the commodity business and the Indian cement sector is certainly losing the plot on that front. Elevated competitive intensity across regions, has prevented margin-accretive price hikes, despite: a) robust demand (Q4FY23E prices slipped ~1% QoQ notwithstanding peak season volume surge of ~10% YoY)

Q4 revenue growth of 11% YoY contributed by volume gains of 8% with realisations up 3%

Recommendation: We upgrade the stock to BUY from HOLD on account of valuation comfort post the recent correction in the stock price.

Ambuja Cements’ (ACEM) Q4CY22 standalone EBITDA at Rs6.3bn (up 10% YoY) was above our and consensus estimates. Volumes (including clinker sale) were up 8% YoY at 7.7mnte. Total cost/te was up by a meagre 3% YoY, but declined 5% QoQ due to cost savings on account of fuel costs.